Innovation Systems for Sustainable and Inclusive Development: How Business Capabilities and Infrastructure Shape National Innovation Outcomes

Abstract

Innovation is widely recognized as a critical mechanism for achieving sustainable and inclusive development, yet evidence on how national innovation systems contribute to development outcomes across countries at different income levels remains fragmented. This study examines how institutions, human capital and research, infrastructure, business sophistication, and market sophistication jointly shape national innovation outcomes that underpin sustainable development, and whether these relationships vary by income level. Drawing from the national innovation system theory and using data from 132 economies based on the Global Innovation Index 2022, the study combines regression‐based moderation analysis with fuzzy‐set Qualitative Comparative Analysis (fsQCA). The results indicate that all five dimensions positively influence innovation outcomes when examined independently; however, the direct effect of institutions weakens once other structural and business‐related factors are considered jointly. Income level significantly moderates the effects of institutions and infrastructure, with stronger development‐oriented innovation returns in high‐income countries, while human capital and research, business sophistication, and market sophistication exhibit robust effects across income groups. The fsQCA findings reveal pronounced causal asymmetries: although no single factor is necessary for achieving high innovation outcomes, the absence of infrastructure constitutes a necessary condition for weak innovation performance in non‐high‐income countries. All in all, the study highlights the importance of coordinated, business‐embedded innovation systems as a foundation for sustainable and inclusive development, offering policy‐relevant insights aligned with sustainable development objectives.